How can I calculate the Social Security benefit reduction?

The Social Security Administration (SSA) sends out monthly payments to tens of millions of Americans every month. These are paid out to retired workers and their survivors, including children, spouses, widows, widowers or parents of a deceased beneficiary.

As well the agency issues benefit payments to workers who become disabled while on the job and Supplemental Security Income (SSI) to adults and children with disabilities or blindness who meet income and resource requirements.

The SSA uses a formula to calculate what benefits you will receive based on a series of factors. However, the agency advises that “workers planning for their retirement should be aware that retirement benefits depend on age at retirement.” Claiming your Social Security benefits before you reach full (or normal) retirement age will reduce your potential monthly payments from what you would have otherwise been eligible for based on your contributions to the program. Here’s how to calculate how much.

How can I calculate the Social Security benefit reduction?

The Social Security Administration has a calculation for just how much your monthly Social Security payments will be permanently reduced from the primary insurance amount accumulated over the years you contributed depending on just how early you retire.

During the first 36 months, for every month that a beneficiary signs up to receive Social Security prior to full retirement age the primary insurance amount will be reduced by 5/9 of 1 percent, or around 0.55 percent. For each additional month beyond 36 months, the reduction is 5/12 of one percent, or a little less than 0.42 percent.

A person who was born in 1960 or later and that retires at 62 in the first month they eligible to begin receiving Social Security benefits will be 60 months short of full retirement age. That translates to a 30 percent permanent reduction to compensate for the extended number of months it is expected they’ll be collecting monthly payments.

However, those who wait to retire later, after their full retirement age, will receive ‘delayed retirement credits’ which will increase the benefits that a retiree will receive. No additional credit is given for waiting past age 69.

The agency provides an online tool that you can use to help calculate the effect of early or late retirement as a percentage of your primary insurance amount you could expect based on your situation. You can also sign up to create a my Social Security account to help track your contributions into the Social Security program as well as manage your account online.